Corn Use, Food Prices, and Ethanol

High commodity prices have reignited the food versus fuel debate.  Not that it ever really went away, but with farmers reaping high prices for several months now you can see how it’s easy for those who don’t have the right information to make the connection that high commodity prices directly lead to high food prices.  Makes sense right?  If the price of ingredients go up, then the price of food must go up too?  Well, it’s not that simple.

Let’s talk about corn because it’s the one crop that is at the heart of this debate.  If you follow any discussion about the price of corn it won’t take long before you find talk of the price of oil.  Corn prices follow the same trends as oil, and at the same time corn will do the opposite of what the value of the American dollar is doing.  Those are two of the biggest reasons corn prices are so high right now.  Another problem is we’ve have a couple years of tough weather robbing some yield which puts in a situation today where we have tight carry over stocks of corn.  The Middle East, source of much of the world’s oil supply, is going through some significant political shifts in many countries and it’s affecting the flow of oil out of those countries.  At the same time the value of the dollar is dropping.

Now that we have a very basic understanding of why commodity prices are soaring let’s get back to the food versus fuel deal.  Proponents and opponents of ethanol often agree that 40% of US grown corn goes to ethanol production.  I was at a marketing meeting a while back and the speaker put it another way.  Four out of every ten rows of the corn we grow is taken to an ethanol plant.  That statement allowed me to visualize that statistic in a very real way.  Four out of every ten?  That sounds like a lot!

OK, you probably think that sounds like a lot too, and I won’t argue with you, because I think it does too, at least on the surface.  Critics of biofuels will often stop their argument right here.  40% of the crop going to ethanol, no wonder food prices are rising!  Once again it’s not that easy.  Ever heard of dried distiller’s grains or DDGs?  This is the by-product of corn ethanol production.  It’s a concentrated feed stock that is sold to the livestock industry.  When you take into account the amount of DDGs going to livestock, therefore putting that corn back into the food market you bring that 40% of corn going to fuel down to 23%.  So we’ve cut that usage number nearly in half, and we’re just talking about the United States.  If we look at grain use on a global scale, only 3% of grain is going to ethanol production.  And don’t forget, we export corn in this country, which means we’ve got product left over after we get what we want out of it to sell to countries all over the world.

The Renewable Fuels Association has written a post entitled Understanding the 2011 Planting Outlook, Ethanol and Food Pricing covering all these figures and how farmers are producing more on the same amount of total acres year after year.  You can see in the RFA chart that planted acres haven’t changed in 15 years.  As farmers continue to adopt new technologies in seed and equipment, and increase the use of more and more environmentally friendly practices like cover crops, they are going to keep getting more productive in the future.

So you don’t need to worry that you’re starving children in underdeveloped countries if you top off your tank with E15, E85, or biodiesel.  It’s more likely those kids are starving due to regional economics and politics, not because American farmers are greedy.